Energy, Financials Lead Decline; Lehman Skids

Stocks closed lower as a more than $3 drop in oil prices dragged on energy stocks and financials came under pressure ahead of a slew of earnings from the sector next week.

The Dow Jones Industrial Average shed nearly 101 points, or 0.8 percent, to close at 12402.85. Earlier, General Motors had propped up the Dow amid enthusiasm for a restructuring plan but a sharp drop in May auto sales let the air out of GM stock.

The S&P 500 index fell 0.6 percent, while the Nasdaq lost 0.4 percent. The CBOE Volatility Index, which gauges fear in the market, ticked up 2 percent to close 20.24, a level not seen since the end of April.

The market popped several times after some good news, including a jump in factory orders, GM's restructuring plan and comments from Federal Reserve Chairman Ben Bernanke, but gains quickly fizzled.

"If you have a down day in both financials and energy, it's hard to gain traction in the broader market," said Art Hogan, chief market analyst at Jefferies & Co.

Lehman Near Five-Year Low

Lehman Brothers shares dropped 10 percent to $30.61, its lowest close in nearly five years. The stock has lost more than 18 percent of its value in the past three sessions amid concerns about the brokerage firm's stability.

The market had been swirling all day that a big bank had tapped the Fed's discount window and that firm was Lehman. Lehman's stock was down nearly 14 percent at one point, showing the stigma surrounding the discount window is alive and well on Wall Street. Lehman squelched the rumors, paring some of the day's losses, telling CNBC that it hasn't used the discount window since mid-April. This morning, an article in the Wall Street Journal suggested Lehman was likely to raise up to $4 billion in capital.

A day earlier, Standard & Poor's cut its rating on major securities firms including Lehman, Merrill Lynch and Morgan Stanley .

Hogan said the sharp drop in financials was largely due to the fact the market, being a forward-looking animal, is already pricing in more dismal earnings from the sector as several big names are expected to report next week, including Lehman, Morgan and Goldman Sachs .

GM eked out a gain of 0.8 percent after earlier sliding as much as 1. 5 percent. The auto maker reported its sales skidded 30 percent in May, well below what analysts had expected. The breakdown highlighted the stark reality auto makers face: Truck sales plunged 39 percent, more than double the 17-percent drop in car sales.

"These higher gasoline prices are changing consumer behavior, and rapidly, significantly affecting the U.S. auto industry sales mix," said GM CEO Rick Wagoner. "We at GM don't think this is a spike or a temporary shift. We believe that it is, by and large, permanent."

Even Toyota , which has fared better than its U.S. counterparts, showed signs of wear: sales fell 7.9 percent amid a nearly 20-percent drop in Lexus sales. Still, Toyota's breathing down the neck of No. 1 GM: sales of both the Camry and Corolla outsold GM's top-selling F-series truck.

Honda , which has the most fuel-efficient lineup, saw its sales jump more than 11 percent; Civic sales soared more than 28 percent.

In economic news, factory orders rose 1.1 percent in April, well above the 0.1-percent decline economists had expected. The rise was largely due to stronger demand for nondurable items such as food and clothing; demand for durable goods such as appliances and automobiles, however, waned.

Meanwhile, Bernanke issued a rare warning on the risks a weak dollar poses for inflation. The Fed chairman also hinted that the central bank may end this recent string of rate cuts, saying interest rates are "well-positioned" for an economy grappling with both price pressures and threats to growth.

Boeing Is Biggest Drag on Dow

Boeing , the biggest Dow decliner, shed 3.7 percent as the company faces a hefty compensation payment as a result of a contamination lawsuit involving its aerospace and defense unit, which it bought from Rockwell International in the mid-1990s.

Toll Brothers rose 3.1 percent after the luxury homebuilder said it swung to a loss of 59 cents a share, which wasn't as bad as the market had feared.

Shares of rival Hovnanian jumped 6 percent ahead of earnings from the homebuilder, due out after the closing bell. Analysts expect a loss of $2.64 a share.

Shares of Staples climbed 1.3 percent after the office-supplies chain raised its all-cash bid for Dutch business products company Corporate Express for the second time to 1.7 billion euros ($2.65 billion), in an attempt to break into the Dutch market.

Tyson Foods tumbled nearly 8 percent following news that the company was culling one of its chicken flocks that had been exposed to a mild strain of bird flu.

Richard A. Grasso, former chairman of the New York Stock Exchange, may be able to keep the staggering $185 million award that once made him a symbol of Wall Street greed -- a package awarded to him by the A-list board members at the exchange who eventually fired him.